AL-WADDAN V MAN: NO RELIANCE ON AN ACT OF PREVENTION

An employer cannot rely upon a contractor's failure to comply with a condition precedent for commencing arbitration, if the employer's action caused the failure. This was the ruling in the case of Al-Waddan v Man on 12 December 20141 (only reported in May 2015), in the High Court of England and Wales.

  • Engineer's decision a condition precedent to arbitration
  • Application of the prevention principle
  • The Court's references to the FIDIC Guide
  • Conclusion
  • Contacts

Engineer's decision a condition precedent to arbitration

The case concerned works to a hotel in the Middle East and the contract was based on the FIDIC Red Book Fourth Edition, 1992 version. This form provides that disputes between the Employer and the Contractor are to be referred to the Engineer who must then give his decision within 84 days of the reference. If either party is dissatisfied with his decision, or if he fails to give it within the 84 day period, the Employer or the Contractor may give notice of arbitration.  The decision (or failure to give it) is therefore a condition precedent to commencement of arbitration.

The problem that faced the Contractor in this case is that, when it sought a decision as to its entitlement under the interim certificate, the Engineer said that his services contract with the Employer had expired and that he had ceased to be the Engineer.

The Contractor wrote to the Employer requesting confirmation that it agreed to re-engage the Engineer or appoint a new one; alternatively the letter was to be treated as a Notice of Arbitration. The Employer gave no substantive reply to this letter and the Contractor proceeded with the arbitration.  The Employer challenged the arbitrator's jurisdiction to make an award under Section 67 of the English Arbitration Act 1996.

Application of the prevention principle

The Employer's application was argued in two ways: (i) that the Engineer was in place and therefore a notice of decision was required and the only letter from the Engineer was obviously not a notice of decision and (ii) that all that the Contractor had to do to proceed to arbitration was to wait for the agreed period of time when no decision would be given, i.e. 84 days, i.e. no 'prevention' or 'hindrance' was caused by any inability to obtain the Engineer's notice of decision.

In relation to the first approach the Court concluded that, if an engineer clearly and absolutely states that it will not perform a contractual function assigned to it, i.e. making a decision, then both parties can proceed with certainty that the contractual requirement no longer binds them. In these circumstances, the parties would accept that the Engineer's decision was no longer a condition precedent to commencing arbitration, or they could attempt to engage another engineer.

As for the alternative approach, the Court drew on long-standing authority in support of the prevention principle, namely that a party cannot take advantage of failure by another party to comply with a condition, when that party has hindered or prevented performance.  The Employer had failed to re-engage the Engineer or appoint a new one.  The Engineer made it clear that he would not give a notice of decision, either within 84 days or at all. Effectively, he had "washed his hands" of his duties and responsibilities. The Employer was under a duty to employ an Engineer and could not rely on his failure to do so to prevent the issue of a Notice of Arbitration. There was therefore no requirement for the Contractor to wait until the expiry of the 84-day period before going to arbitration.

In the circumstances, the Employer could not now object to the arbitration proceeding.

The Court's references to the FIDIC Guide

Throughout the ruling the Court referred in some detail to the Contents of the FIDIC Guide to the Red Book 4th Edition which, while the Court acknowledged was not a contract document, could, as it put it, "assist the court in understanding the background to how some of these contracts work". The Court referred in particular to the identity of the Engineer being a factor in the calculation of the Contractor's tender and that this was a reason why the Employer could not change the Engineer without the Contractor's consent.

Conclusion

This decision is of particular interest on two grounds. First, it identifies the prevention principle as an aspect of the implied duty to co-operate which the Courts readily imply into construction contracts.  Secondly, this would appear to be the first time that the Court, while acknowledging that it is not a contract document, has utilised the FIDIC Guide in interpreting and understanding the standard form contract. Users of the FIDIC forms should therefore ensure that they are familiar with the FIDIC Guide, and in particular in the event of disagreements between the parties as to the interpretation of certain provisions.